Understanding the Ooma Business Model

Feb 12, 2015

Ooma is a California-based telecommunications company that offers users the chance to make low-cost phone calls throughout the US and Canada. Users can also hook their fax machines into this VoIP service without an extra cost. What makes Ooma attractive to consumers is the fact that after their initial equipment purchase, the only other costs are monthly service fees and Federal taxes that may apply.

Many people might remember the early days of Ooma when Ashton Kutcher helped to found the company and acted as its leader in 2004. In 2008, however, the Ooma business model was shifted to focus on the market they are currently in, providing calling and mailing services for consumers over the internet. Although it is promoted as an unlimited service, users are limited to 5,000 minutes in total per month.

Ooma Has Separated Residential and Business Customers

Recognizing that small businesses could benefit from VoIP services that were low-cost as well, Ooma started a complimentary service to their Ooma Telo called Ooma Office. This provides some additional features for the small business owner, including phone extensions and a virtual receptionist, so that incoming prospects or customers receive a professional experience when calling in. Conference bridges and ring groups are also included.

Business services on Ooma begin at just $19.99.

The need for these telecommunications services was immediately evident. Many consumers are already investing in high speed internet to meet their home or business needs and this can easily exceed $100 per month. Who wants to spend another $100 per month just so phone calls could be made? In September 2007, venture capitalists agreed with the concept and brought in over $61 million of funding for this organization.

This helped Ooma be in over 5,000 retailers by the end of 2009. This venture capital includes the $8 million of Series A funding that was received in 2005 and $18 million of Series B funding in 2006.

Is the Ooma Business Model Viable?

As with any other internet-based product, Ooma is dependent on the user’s internet speeds and accessibility of service to be successful. If there is an internet outage, then you’re not going to have phone services. That could be problematic for someone who has an emergency situation.

The advantage, however, is that there is no new wiring that is needed for Ooma to work. Users also receive 24/7 customer support if they need it should they run into problems. Unlike other VoIP services, Ooma also doesn’t require any additional IP phones or equipment in order to work. You just purchase the equipment up front from any retailer or directly from the company and that’s basically it. The suggested retail price is around $250 for business models and $130 for residential models.

The residential services serve just as a traditional phone line would, but Ooma Office has some unique capabilities that make this telecommunications service scalable for users. It can expand to 5 actual phone extensions if needed and 15 virtual extensions are also included. Voicemail is also offered, as is a directory listing, and caller identifications services are available.

What Sets Ooma Apart From the Competition?

What makes the Ooma business model stand out is how they’ve emphasized the ease of use of their product. To receive HD voice reception, it takes about 15 minutes to set up the equipment. Ooma even uses the regular home phone that people have and allows a household to keep their current phone number, even if switching from a landline.

The pay-up-front business model is also a different component of the VoIP industry. The competition charges monthly fees for services and very little for the equipment. Ooma charges for the equipment upfront and charges maintenance fees from then on instead. This means they receive all of their profits from the initial purchase of their equipment.

The Ooma business model might not be for everyone. Not every business service can charge 100% of their profits in an upfront purchase. Real value must be achieved in order to do this and then must be provided in an ongoing basis. If possible, however, this business model does have an advantage in the fact that immediate profits can be realized with every purchase instead of trying to build them up through subscription services that are ongoing.

Ooma has come far since its founding in 2004 to provide one of the most unique VoIP services on the market today. The lessons learned from their business model can help every small business find the success they desire.

After being physically and mentally disabled by a brain tumor, Brandon overcame the odds to regain his health to help his pregnant wife in her fight against stage 3 breast cancer. A couple of years later he launched his blog. Today over 1 million business owners read his blog every month. Read Brandon's inspirational comeback story here.